Enablers and Challengers: The Rise of Fintech
by Helen Sanders, Editor, TMI
The Cash Management University included an interesting and engaging series of in-depth workshops from which participants could choose, covering topics such as cash investment, payment factories and reverse factoring. The following article outlines some of the themes and issues that were explored during a fascinating workshop on fintech, “Taking the Buzz out of Fintech”, featuring Robert Dekker, Associate Director, KPMG Advisory, Bruno Mellado, Head of International Payments and Collections, BNP Paribas and Dominique Adriansens, CEO and founder of fintech company Twikey.
Who are fintechs?
Given that using technology to enhance and automate financial processes and decision-making is not new, it is sometimes difficult to define ‘fintech’, which is simply a contraction of ‘financial’ and ‘technology’. In general, fintech is used to describe new products from new startups, or the adoption of new approaches by existing players where technology is the key enabler. So far, fintech innovation has been targeted more at the retail than wholesale financial space, with the World Economic Forum identifying six ‘innovation clusters’: payment; market provisioning; investment management; insurance; deposits, and lending and capital raising. Increasingly however, we are seeing a greater focus on solutions for corporations as well as individuals and small businesses.
Catalysts for fintech growth
Fintech companies are already attracting significant investment, estimated at $20bn in 2015, and the twenty largest fintechs generated $45bn in 2014 alone. While this level of growth and investment puts some bank revenue at risk, the likelihood is that banks and fintechs will continue to co-exist, and given the expansion in the financial services market, there is room for both to flourish.
Regulators have been proactive in embracing and encouraging the growth of fintechs by recalibrating their supervisory approach to reflect the new environment, engaging in a dialogue with stakeholders, and improving their knowledge of technology innovation. The Australian Securities and Investments Commission (ASIC), for example, has started an Innovation Hub, while in the UK, the Financial Conduct Authority (FCA)’s Project Innovate has supported over 175 new businesses by providing the environment in which to test innovative products, services, business models and delivery mechanisms. Also in the UK, the Open Banking Working Group, set up by HM Treasury in September 2015, has created an open banking standard for building bank application programming interfaces (APIs) to stimulate technology innovation in the financial sector.
Although in theory fintechs have no inherent advantages over banks or more established players, their scale and lack of legacy issues enables them to be more adaptable to a changing business and technology environment, and create, test and take to market new solutions more quickly. Furthermore, without the potential constraints of existing products, services and business models, it is often easier for these companies to bring a fresh perspective on existing models and identify and deliver more radical, potentially ‘disruptive’ solutions.